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A factory costs $400,000. you forecast that it will produce cash inflows of $120,000 in year 1, $180,000 in year 2, and $300,000 in year 3. the discount rate is 12%.
a. what is the value of the factory?a factory costs $400,000. you forecast that it will produce cash inflows of $120,000 in year 1, $180,000 in year 2, and $300,000 in year 3. the discount rate is 12%.
a. what is the value of the factory?

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Kalahira
$464,171.83 The discount rate is used to calculate the present value of an asset you expect to get in the future. The formula is PV = FV/(1+R)^n where PV = Present Value FV = Future Value R = Rate n = Number of periods So let's look at the return for the first 3 years Year 1 PV = $120,000/1.12 = $107,142.86 Year 2 PV = $180,000/1.12^2 = $180,000/1.2544 = $143,494.90 Year 3 PV = $300,000/1.12^3 = $300,000/1.404928 = $213,534.07 So the current value is PV = $107,142.86 + $143,494.90 + $213,534.07 = $464,171.83

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